Agents uncertain over HMRC compliance checks

A year on from the introduction of HMRC’s new inspection powers and compliance checks, tax agents and practitioners are still finding it hard to adjust to the new regime.

Evidence from the Chartered Institute of Taxation, CCH Fee Protection and AccountingWEB.co.uk members paints a picture of uncertainty, occasional inconsistencies and client ignorance about the nature of the visits and the potential penalties under the new regime.

points out that over the past year, “there has been a greater level of response (formally and informally) on this issue than any other”.

Launching the report, CIOT president Andrew Hubbard was relieved that the worst fears about excessive and inappropriate use of the new powers have not been realised, but noted a lack of clarity about who the new powers will be applied in which circumstances.

“Additionally, we have identified concern around how the new penalty regime is being operated,” he said. “HMRC seem reluctant either to impose high penalties for deliberate understatement or to accept that there have been innocent errors in some cases, instead going in almost every case for the middle option of determining a failure to take reasonable care.”

CCH Fee Protection confirmed that by December 2009 claims were up 60% on the previous year following the introduction of the new regime. CCH highlighted the issue as one of the top sources of practitioner stress, mainly because they and their clients’ weren’t sure about how to deal with the checks.

According to CCH, practitioners still need to get used to the idea that compliance checks range across all types of tax and can expand into full aspect enquiries that take in previous years.

To add to agents’ stress levels, the CIOT report noted that in some cases where agents don’t have authorisations to act on a client’s behalf for a particular tax type, they may not even know that an enquiry is taking place. Often tax agents will advise clients on some aspects of their tax affairs, but not get directly involved in the process because of the paper chain that can result. HMRC’s current systems for agent authorisation do not lend themselves to setting up this type of authorisation, the CIOT noted, so for the moment an informal workaround has been created that does not undermine client confidentiality but still allows agents to be aware of enquiries.

devoted considerable time to understanding how they were being applied. Discussion group leader Ros Martin commented: “As with all new powers gained by HMRC, it is important to appreciate the scope of the new provisions which underpin the new approach. It is vital that HMRC do not exceed their powers simply because taxpayers do not understand what the limits are. Equally, it is unhelpful if taxpayers argue against new procedures which are in fact legitimate as this increases frustration for all involved.”

“HMRC seem reluctant either to impose high penalties for deliberate understatement or to accept that there have been innocent errors in some cases, instead going in almost every case for the middle option of determining a failure to take reasonable care.”

I noticed that on a joint Learning Together course that I attended, although some delegates from HMRC were willing to accept that innocent errors can be made, many others simply did not believe that a taxpayer could ever (well - hardly ever) make an innocent error. Indeed in some cases, the total lack of any commercial nous and reality really was quite alarming.

There really is little point in having a new penalty system if all the "old lags" of HMRC are just going to ignore it and carry on doing what they always have done.

Either we as practioners are going to have to deal with this ourselves by regularly taking cases to the first tier tribunal on a pro-bono basis, or the training that HMRC gives its staff has got to substantially improve to reflect commercial reality and just plain common sense.

I also attended a Learning Together workshop and would entirely agree with the previous posting. The other issue which emerged from that course was the severe limitation that HMRC are putting on the interpretation of the 'reasonable care' defence against the tax linked penalties.

I am going to start a new thread on the Compliance Check forum to see what practical experience our readers have got of the new regime if anyone is interested in joining in!

the inspectors and officers I have met on the ground doing all the chores announced by the press releases here seem to say the same thing:

its nigh on impossible to get Customs and excise compliance staff working alongside "HMIT" staff even when they are in the same building such as in croydon because the national systems are so different!